Correlation Between Tax Exempt and New Economy
Can any of the company-specific risk be diversified away by investing in both Tax Exempt and New Economy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Tax Exempt and New Economy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tax Exempt Fund Of and New Economy Fund, you can compare the effects of market volatilities on Tax Exempt and New Economy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Tax Exempt with a short position of New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax Exempt and New Economy.
Diversification Opportunities for Tax Exempt and New Economy
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Tax and New is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Tax Exempt Fund Of and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund and Tax Exempt is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Tax Exempt Fund Of are associated (or correlated) with New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of Tax Exempt i.e., Tax Exempt and New Economy go up and down completely randomly.
Pair Corralation between Tax Exempt and New Economy
Assuming the 90 days horizon Tax Exempt is expected to generate 6.36 times less return on investment than New Economy. But when comparing it to its historical volatility, Tax Exempt Fund Of is 4.09 times less risky than New Economy. It trades about 0.06 of its potential returns per unit of risk. New Economy Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4,412 in New Economy Fund on August 27, 2024 and sell it today you would earn a total of 2,283 from holding New Economy Fund or generate 51.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tax Exempt Fund Of vs. New Economy Fund
Performance |
| Timeline |
| Tax Exempt Fund |
| New Economy Fund |
Tax Exempt and New Economy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tax Exempt and New Economy
The main advantage of trading using opposite Tax Exempt and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax Exempt position performs unexpectedly, New Economy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in New Economy will offset losses from the drop in New Economy's long position.| Tax Exempt vs. Victory Incore Investment | Tax Exempt vs. Fidelity Vertible Securities | Tax Exempt vs. Lord Abbett Vertible | Tax Exempt vs. Teton Vertible Securities |
| New Economy vs. Washington Mutual Investors | New Economy vs. American Balanced Fund | New Economy vs. New World Fund | New Economy vs. Europacific Growth Fund |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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